As every landlord surely knows, running a credit check during the tenant selection process is paramount. However, not every landlord realizes what to do with the information the credit check reveals.
“Every independent landlord knows that to screen a tenant, you have to look at their credit, but a lot of them have no idea how credit relates to a tenant’s ability to pay rent on time,” said Jerome Werniuk, director of sales at Naborly Inc., which runs free credit and background checks. “Ninety-five percent of landlords have tenants show up with their own credit file, meaning they go to Credit Karma or Equifax, but when we hear professional tenant stories, these people come with doctored credit checks.
Doctoring a credit check is as easy as finding a template online and filling it in as one wishes. It’s what Werniuk describes as a huge problem within the industry.
While savvy landlords realize they can obtain credit checks from Equifax or TransUnion, many still don’t know, nor have time, to mine the information therein to decipher a tenant’s capacity for prompt rent payments.
“To get a credit file from either of the credit bureaus, they have to pay for it and a set-up fee for the individual’s report, but there’s a heavy credentialing process to pull somebody’s file,” said Werniuk. “Even when the landlord gets a credit file, they don’t know how to read it. They don’t know exactly what an R9 is or how someone paying a cell phone bill on time impacts their ability to pay rent. So credit is not necessarily a good tool for independent landlords.”
Naborly builds a different type of credit report using critical criteria like contemporary cost of living and verifiable income to determine a potential tenant’s ability to pay rent. It has proven so popular that, when it launched in February 2018, Naborly screened 100 people a week. Now, it screens at least that many people in a day.
"The biggest feedback we’ve received from landlords is our tool is amazing at assessing risk so that they can properly evaluate whether or not to accept the rental application,” said Werniuk. However, there remain risks that are extremely difficult to predict. Landlords have said that many of their previous evictions were due to circumstances that changed after the tenant moved in, like job loss or some other unforeseen, and expensive, event in their lives. Nobody can predict those things.”
The average cost of eviction in Ontario is $9,000, and that could cripple an investment. In response, Naborly has rolled out Rent Guarantee, which doesn’t just risk assess but also protects the landlord for the full term of the lease. In effect, Naborly cats as the tenant’s co-signor, which shields the landlord’s investment.
“It’s based on the Naborly report and the risk score we give, which directly correlates to a tenant defaulting on rent,” said Werniuk. “We give a quote for how much rent guarantee will cost. They can have Naborly become a guarantor on the lease, meaning if the tenant ever defaults then Naborly steps in and covers the rent for up to six months. Our primary customer for Rent Guarantee is the landlord who only owns one or two units because if they don’t collect rent for two or three months, they’ll have issues paying their mortgages and they could lose the property.”
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